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Stocks' Final Frontier

We're kicking off the first five weeks of 2005 by profiling five promising innovations on the verge of exploding into the mainstream in the New Year. Last week, we covered radio frequency identification tags, otherwise known as RFID. Today, we're tackling the commercialization of space travel. You might want to fasten your seat harness.

Star Trek hit the airwaves in 1965, but 2004 will go down as the year the real star trek began.

Nearly 40 years after that seminal TV series, and more than 35 years after humans landed on the moon, we've reached the dawn of a new space race. But instead of America battling the Soviets, it is Lockheed (NYSE: LMT) vs. Boeing (NYSE: BA) , SpaceDev vs. Orbital Sciences, Virgin vs.... well, every other embryonic space tourism outfit.

And the stakes in this battle couldn't be higher: The winners will earn market supremacy in the final frontier. Talk about pricing power. More importantly, imagine the investment potential.

Typically, it takes decades for developments in space to have a real impact at sea level. Last year's full calendar of intergalactic events changed that. From President Bush lighting a fire under NASA to get to Mars, to SpaceShipOne earning the $10 million Ansari X prize for suborbital space flight, to Sir Richard Branson's new Virgin Galactic venture, the heavens suddenly became downright hip. And it's continued into 2005. Witness the cover of the most recent issue of Wired magazine for which Branson donned astronaut gear.

And though it doesn't feature Wired's textured stock cover and various other stylish colored bubbles, we at The Motley Fool have a remarkable new publication called Rule Breakers. This service, which I'll describe for you in more detail in a minute, is dedicated to ferreting out tomorrow's great growth stocks early in their disruptive stage.

What Is a Disruptive Innovation?As the name implies, it's a breakthrough that rattles the walls of the conventional, technological advances, from the automobile to the microwave oven, that ultimately reshape our lives.

Being a certifiable science fiction geek, I get pretty excited by all these developments, but the investor in me wonders if this is all hype. Can those of us here on Earth really make money from humanity's newfound passion for the heavens?

In a word, yes. There are dozens of potential markets created by commercializing space flight, including the following two that I think are most promising.

Space tourismThough SpaceShipOne's historic flights captured the headlines, it was the Feds who were responsible for potentially jumpstarting suborbital space tourism. The Commercial Space Launch Amendments Act (even less romantically known as H.R. 5382) ultimately allows average Americans to hitch a ride on a rocket at their own risk. The president signed the bill into law two days before Christmas.

Soon after, interest in the 70-mile-high club began to run high among celebrities. For example, William Shatner of Star Trek fame, and Sigourney Weaver, star of the Alien films, both said they'd enjoy traversing the final frontier. But what about average Janes and Joes? Virgin thinks they'll sign up in droves. In fact, a spokesman quoted in the Wired story says more than 12,000 people have registered at Virgin Galactic's website, each a potential future ticket holder. Says Virgin spokesman Will Whitehorn, "People are throwing checks at us." At $200,000 per ride, that's potentially $2.4billion in sales.

But space tourism has been hyped before. During Christmas of 1968, Pan Am chief Juan Trippe started taking reservations for trips to the moon. Some 90,000 people signed up. What's different this time around? For one, we're not talking about a trip to the moon. A suborbital trip not even 90 miles above the Earth is a breeze compared to a lunar expedition. Second, the cost of spaceflight has dropped considerably, in no small part due to the relatively low cost of computing equipment. And finally, space travel is safer now. Consider SpaceDev, which created a rocket engine that literally burned rubber to light SpaceShipOne's candle. That's far safer than the combustible components used to create classic rocket fuel.

So, how can the common investor get in on space tourism? Right now, SpaceDev is among the very few public companies in this mix, but there are plenty of private companies worth watching. Among them: the LiftPort Group, which is constructing a space elevator; Space Adventures, which has been dealing in space tourism since 1998; XCOR, which is competing with SpaceDev to create suborbital space engines; and the Zero Gravity Company, which offers weightless flights on a specially modified Boeing 727.

Galactic hitchhikingCargo is a huge industry -- just ask FedEx (NYSE: FDX) and UPS (NYSE: UPS) . Those two generated more than $60 billion in sales over the past 12 months. But that's the tip of the proverbial iceberg when you think about the entire market, which includes airline cargo, private couriers, trucking, shipping, and so on. Especially now with the continued rise of e-commerce, the industry seems to get larger every day.

Don't expect growth to slow anytime soon, especially now that more payloads are headed for the stars. Consider Space Services, which arranges orbital funerals. Next month, more than 100 of our dead from around the globe will lift off from SpaceX's Falcon I rocket, which is designed to reach orbit more affordably than the classic white and black behemoths of old. Combine that with new micro-satellites that will be easier to haul and you've got a burgeoning industry ready to dot outer space with more electronics than you can find at your local Best Buy. That's good news for companies that already do part of their business in space, such as Sirius (Nasdaq: SIRI) and XM Satellite Radio (Nasdaq: XMSR) .

Where are the investing opportunities in space cargo? SpaceDev is helping construct micro-satellites, as are the big defense contractors. Other big players such as SpaceX and Space Services remain private, but both of them are absolutely worth watching.

Beam me upThat the Feds are asking the private sector to invest in space is good for everyone, especially investors. But it's also worth noting that NASA's mission to get back to the moon in 10 years and Mars afterward will require it to fund hundreds of innovations, many of which will be created in private labs. Fortunately, the space agency knows this and has unveiled Centennial Challenges. Modeled after the Ansari X prize that SpaceShipOne took home, the first awards will be modest, but could grow over time to as much as $50 million for far-flung adventures such as commercial moon shots.

No doubt, the combination of federal and private investment should grow the commercial space market dramatically over the next five years. Though many of the companies that will participate in this revolution remain private, not a few are public today, from ghoulish trickster Xybernaut to mega-contractor Ball (NYSE: BLL) . And many more likely will come public soon.

David Gardner described these opportunities best when he said, "The earth can shake when Rule Breakers are born on our public markets. They bring a disruptive technology, diabolically clever and effective marketing, or a totally new business model to this little backwater planet of ours. They rattle our capitalistic foundations. And in so doing, they create serious profits for the opportunistic investors who find them early on."

It's our job to keep our eyes peeled for these kinds of opportunities. We take a great deal of pride in finding worthwhile stocks, and making strategic bets where we may. In that sense, this revolution is no different than any other, and we can all profit together. If you choose to join us before Jan. 31, take 50% off. Now, would you mind beaming me up?

Motley Fool contributorTim Beyersis a confessed Trekkie, and he got the Star Wars DVD collection for Christmas. He wishes he owned some of the stocks in this story but, alas, he doesn't. Fortunately, you don't need a telescope to see what stocks Tim owns. You can check his portfoliohere, in his Fool profile. The Motley Fool, which has a disclosure policy, isinvestors writing for investors.

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Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At Fool.com, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at timbeyers.me or send email to tbeyers@fool.com. For more insights, follow Tim on Google+ and Twitter.